Supreme Court’s Ruling Limits the Effectiveness of Rule 68 Offers of Judgment in Class Action Litigation

Rule 68 of the Federal Rules of Civil Procedure permits a defendant to make an offer of judgment to resolve the plaintiff’s claims prior to trial in a specified amount. One benefit of a Rule 68 offer from the defendant’s perspective is that if the offer is not accepted and the judgment finally obtained by plaintiffs is not more favorable than the unaccepted offer, the plaintiff must pay the costs incurred by defendant after the offer was made. Another benefit until recently was that, in the context of class action litigation, an offer of judgment made to a class representative plaintiff prior to a motion for class certification could potentially render the entire class action moot in certain jurisdictions. That changed with the recent U.S. Supreme Court decision in Campbell-Ewald Co. v. Gomez,1 in which the Court held that a class representative’s unaccepted offer of judgment prior to class certification “has no force” and does not divest the district court of subject matter jurisdiction and thus does not render the entire action moot.

In Campbell-Ewald the plaintiff commenced a putative class action lawsuit against a nationwide advertising and marketing communications agency for violations of the Telephone Consumer Protection Act (TCPA). The TCPA prohibits any person “making any call . . . using any automatic dialing system . . . to any telephone number assigned to a paging service [or] cellular telephone service.” Plaintiff alleged that the defendant company sent him unsolicited text messages in connection with a marketing campaign that it was running for the U.S. Navy and commenced a class action on behalf of a putative nationwide class of individuals who received such solicitations without consent, seeking treble statutory damages ($500 per violation), attorneys’ fees, and costs, as well as an injunction.

Before the deadline for plaintiff to file his motion for class certification, defendant made a Rule 68 offer of judgment to satisfy plaintiff’s individual damages, with the exception of attorneys’ fees. Defendant also proposed a stipulated injunction. After the statutory 14-day period for accepting the offer lapsed, defendant filed a motion to dismiss the action for lack of subject matter jurisdiction on the ground that no “case or controversy” existed any longer because the offer of judgment provided the class representative plaintiff complete relief and thus mooted his individual claims. Defendant also argued that because the offer was made prior to plaintiff’s motion for class certification, the putative class claims also were mooted. The district court denied defendant’s motion and after affirmance by the Ninth Circuit Court of Appeals,2 the Supreme Court granted certiorari to resolve a split among the Circuits over whether a defendant’s unaccepted offer of judgment to a class representative plaintiff prior to the filing of a motion for class certification moots the entire putative class action.

Treating an unaccepted Rule 68 offer of judgment “like any unaccepted contract offer,” which “once rejected, has no continuing efficacy,” the Court held that plaintiff did not moot his individual claims by rejecting the offer of judgment. The Court reasoned that as long as the parties have “a concrete interest, however small, in the outcome of the litigation the case is not moot.”3 The Court explained that an unaccepted offer cannot moot a case because, as Justice Kagan stated in her dissenting opinion in Genesis HealthCare Corp. v. Symczyk4: “When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains as it was before. And so too does the court’s ability to grant relief.… So assuming the case was live before—because plaintiff had a stake and the court could grant relief—the litigation carries on unmooted.” Moreover, because the class representative’s individual claims were not rendered moot by the unaccepted Rule 68 offer, neither were the putative class claims. Although “a class lacks independent status until certified, a would-be class-representative with a live claim of her own must be accorded a fair opportunity to show that [class] certification is warranted.”5

In their dissenting opinion, Justices Roberts, Scalia and Alito stated that “when a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III.”

The Campbell-Ewald decision is the first pro-consumer decision in the class action context from the U.S. Supreme Court in recent years and certainly will result in a change in class action litigation defense strategy. Rule 68 offers of judgment have been increasingly used as a tool to limit a company’s class action litigation exposure and defend against individual class representative plaintiffs’ claims. The Court’s holding likely will limit defendants’ ability to resolve small value claims early in class action litigation. More changes to class action defense strategy may soon be on the way, as the Supreme Court is scheduled to decide two other class action cases this term.

1 577 U.S. ___ ,  2016 WL 228345 (Jan. 20, 2016).

2 Following the denial of defendant’s motion to dismiss, the parties engaged in limited discovery relating to whether the defendant, as a contractor with the U.S. Navy, was entitled to sovereign immunity under the TCPA. The court granted defendant’s motion for summary judgment on this issue, holding that as a federal contractor acting on the Navy’s behalf, the defendant acquired the Navy’s sovereign immunity from suit under the TCPA. This Client Bulletin does not discuss the sovereign immunity aspect of this case. However, it is worth noting that the Ninth Circuit Court of Appeals reversed the district court’s grant of summary judgment and the Supreme Court affirmed, holding that the defendant’s status as a federal contractor did not entitle it to derivative sovereign immunity under the TCPA.

3 Quoting Chafin v. Chafin, 568 U.S. ___ , 133 S.Ct. 1017 (2013).

4 598 U.S. ___ , 133 S.Ct. 1523, 1533 (2013) (Kagan, J., dissenting).

5 577 U.S. at ____, 2016 WL 228345 at *7.